Adam Smith's Lost Legacy

GavinK9 AT gmail DOT com

Friday, November 30, 2012

Offending Markets or the Gods?

Chris
Allsobrook is a lecturer in philosophy at St Augustine [Catholic] College and a
politics research associate with the University of Johannesburg. He is also
managing editor for the social and political theory journal Theoria.He writes,
29 November, in Thought Leader (Mail & Guardian), South Africa HERE

“Margaret Thatcher
shared with Thomas Hobbes, the great English political philosopher, a typically
British, myth-busting receptivity to common-sense. Thatcher saw through the
self-serving rhetoric of moralists whose ideals were bankrupting the economy.
She pushed government to basic accounting principles and put Britain back on
track. Yet “there is no such thing as society” is the heartless, bean-counting
claim for which she is remembered by community-oriented lefties. She gutted
societies with the logic of mergers, acquisitions and downsizing, then in
vogue, erasing the entity whose existence she denied.

We
should interpret Thatcher’s claim more and less charitably. Three hundred years
earlier, when Hobbes argued, “there is no such thing as ‘the people’ ” he,
admittedly, supported monarchy. But his enlightened point was we should never
forget the faces of real human beings, with artificial, abstract concepts like “we,
the People” (or, to emphasise this “they, the Africans”). It’s fine to raise
appeals on behalf of “society” but who represents individuals on the ground, if
not they themselves, in person or in contract? Thatcher was right, sociologically,
there is no “society” in the real world; only the members which make up the
set. But her anti-essentialist kudos (also in vogue, at the time, like big
hair) was unmatched by naïve faith in economic entities of mythic proportions,
like, the “market” and its omniscient, omnipotent author, the “invisible hand”.

“There
is no invisible hand guiding the market; just the grubby hands of individuals
engaged in transactions. Moreover, the “market”, like “society”, is not a
category into which each member identically fits. And, just as the term “society”
often assumes illicit commonality between politicians and “the people”, so, the
concept “market” masks contracts and relations of power between actual people,
some in large, lonely mansions, many crowded into broken, little homes. Yet,
realistic economists — who may baulk at a “common good” beyond the actual goods
of individuals — are committed to more laws of the behaviour of this abstract
entity and are prepared to sacrifice more corpses to it, than any religious
order has paid its gods.”

Comment

Interesting
take on the “invisible hand” and “society”.Though I baulk at the idea there is a measureable
comparison between the millions of actual corpses from religious-based notions
of invisible beings (gods and devils) needing to be appeased by physical
punishments inflicted on real and supposed defectors from a host of
superstitious beliefs about offending a host of imagined instructions from
these imaginary gods and devils through millennia from pre-history to today and
tormenting the “victims” to “appease” the god’s of those afflicted with “pusillanimous
superstition” (Adam Smith’s words for it) adds up to misery for many millions
of humans.

Of
course, taking Chris Allsobrook’s “corpses”
metaphorically it is still arguable.Long before the first primitive markets even existed
between farmers and the first ‘towns’ (c. 8,000 BCE), early notions of
religious superstition governed the lives of hunter-gatherers, judging by their
grave goods.

However,
I am pleased to note the disavowal of the existence of an “invisible hand” by
Chris Allsobrook, given the predilections for theology for notions of the “hand
of god” in human events throughout the Christian era.

Thursday, November 29, 2012

A Claim from the 1980s in Mainstream Economics

“The
Invisible Hand, 1980”

Dr. William Peterson, the Scott L. Probasco, Jr., Professor of Free Enterprise
and director of the Center for Economic Education at the University of
Tennessee at Chattanooga, posted in 1980 in the Foundation for Economic Education’s "The Freeman”, a stout
defence of profit, much of which I would agree needs to be stated.But look what he tags on to it – a gratuitous
and unnecessary quotation on an entirely different subject from Adam Smith on
how some, but not all merchants, concerned with the security of their capital
if they sent it abroad in foreign trade and shipping were inclined to invest it
in “domestic industry” instead, and how this addition to domestic capital added
to the total of annual domestic “revenue and employment”.

Dr Peterson writes:

“To be sure,
repressing and decontrolling prices and then taxing “windfall” gains are done
under the name of the public interest. But self-interest in a market system
usually advances the public interest more than those who profess to serve the
public interest (apart from their own inevitable personal interest). As Adam
Smith observed, the individual “neither intends to promote the public interest
nor knows how much he is promoting it . . . . By . . . directing (his) industry
in such a manner as its produce may be of the greatest value, he intends only
his own gain, and he is in this, as in many other cases, led by an invisible
hand to promote an end which was no part of his intention.”

Comment

Now, mindful that
not all merchants invested locally from their concerns about the risks of
foreign trade (and therefore not included in Smith’s singular example of “an
invisible hand” in Wealth Of Nations) and most decidedly do not always “promote the public interest” as far
as consumers – or other domestic merchants - are concerned.

Smith also
questioned whether all domestic investment from merchants in their
self-interests was necessarily “advantageous” to society, compared to some
alternative configurations that different conceptions of their self-interests
would have led them to invest in.The answer depended on a whole host of factors and therefore it seems to
me a stretch to make this an argument for all domestic investment being equally
beneficial.This strikes me as a bland assumption if no more than an unexplained single extract from a single paragraph is proclaimed
as a general rule.Adam Smith
noted all over Wealth Of Nations, for example, that self-interested merchants often persuaded
the legislature to enhance their domestic profits by restricting competition through
tariffs and prohibitions of foreign imports.This was one of the major themes of Adam Smith’s “violent attack
on the entire commercial system” then operating in Britain, as it had done for
two or more centuries, in his critique of “mercantile political economy.”

This post was
originally made in 1980 in the midst of the post-Samuelson explosion of
multiple references to the invisible hand, supposedly “miraculously” at work in
the market economy, though nobody can show this was Adam Smith’s “concept” nor,
for that matter, how it worked.Markets work through visible price signals, not theological
superstitions of “Providence”, “Divine” orders and “invisible” beings.Markets reflect costs and profits. Mostly
they are realized in markets, which have a singular advantage over state-managed
command economies, which do not know of “market prices” or know the real economic cost of anything (there truly is 'No such thing as a free lunch',),
and consequently they miss out on entrepreneurial discovery and the resultant benefits
of a price-driven complex market economy.

Tuesday, November 27, 2012

Thanksgiving Dinners No Thanks to the Invisible Hand

“Adam Smith called
it “the invisible hand” — the
mysterious power that leads innumerable people, each working for his own gain,
to promote ends that benefit many."

Comment

If a scientist suggested there was a “mysterious power” acting in a
system, they would be expected to explain how it worked.In economic systems we are assured above that
there is an invisible “mysterious power” at work, but nobody can explain what it is or how
it works,or why it needs to be invisible.There certainly is
no mathematical term ever offered for it in the most advanced mathematical
modelling, or even in the simplest.

It’s just asserted to be
there in the economy, entitled the “invisible hand” and attributed allegedly to Adam Smith.Brilliant minds assert its existence; some of them defend
the supposition angrily when asked what it is and what it does.

Yet, from what we know of markets we know for certain that they operate
by very visible prices.There is nothing invisible about a price.No market can work without visible prices; no employee
would work without a visible remuneration (outside slavery); nobody would buy
much without knowing the price and nobody would sell much if their prices were not
disclosed. They would certainly demand payment in visible cash if none was forthcoming.

In the British Ministry of Defence items were withdrawn from the stores
by requisition orders and nobody knew the costs of the items, either when
issuing them or requisitioning them.Then the MOD ordered that every item in the stores were to be labelled with its
cost.That alone was radical; the
outcome was predictable, fewer items were requisitioned.The visible acquisition cost (from MOD's suppliers) was a surrogate for the supplier's price, and
rising costs in supplies competed with rising costs elsewhere in the defence
budget, crucial when Supply departments had run out of their budget.

Nobody needed to envisage an invisible hand to explain the
mystery.Nor do we need such a
“mysterious power” to explain the events leading to Thanksgiving.Expected higher demand for turkeys,
leads to anticipation of higher revenue if you are anywhere involved in the
turkey supply chain months before November, and higher demand times the quantity of whatever you are
selling at the anticipated prices, is enough to activate you do your bit for
Thanksgiving dinners, including all the associated products and services. This phenomena is called markets at work and the means are visible prices.

As for Adam Smith's alleged involvement in the "mysterious invisible hand", please consult multiple posts on Lost Legacy.

Monday, November 26, 2012

Adam Smith On Exchange

Dr David Graeber (2011) in his book, “Debt the First 5,000 years”
(Melville House), made assertions about Adam Smith on the subject of “truck,
barter, and exchange on thing for another” in his Wealth Of Nations (WN I.i.1:
25) published in 1776.Smith’s words
were: exchange was “a necessary consequence of the faculties of reason and
speech” and linked it to the division of labour. In fact, Dr Graeber reports,
somewhat sneeringly, that anthropologists in the 20th century have
not found any evidence of barter among the peoples they had studied in the
field.Maybe, but they certainly
have found much on the prevalence of exchange, much as Smith meant it.

Not being a trained anthropologist, I was unable to judge or discuss
the fieldwork of scores of professionals, all of whom today are able to access
hundreds, if not thousands, of scholarly sources, from their desks via the
Internet.Naturally, I presumed on
the basis of David Graeber’s firm convictions that he had sound reasons for being
so sure of his assertions, though I was never completely satisfied with his
claims the Smith was adamant that 'barter' necessarily preceded exchange the invention of money. Exchange certainly preceded both Truck and Barter.

I was not entirely convinced on several grounds that his modern
evidence contradicted Smith’s 18th-century arguments about the
social evolution of human societies.Smith used what limited evidence he had from the historical sources
available to him, particularly those written (e.g., by two French Jesuit residents and
travellers across Canada) on North American ‘Indian’ natives some 300 years
after Columbus got there in 1492. He also had access to Captain Cook’s three
late 18th-century voyages to the Pacific - he had copies in his
library - plus his readings from the Hebrew/ Christian Bible, (which covered a
period roughly from the 8th century BC, about the many travails of
a bronze-age, Jewish tribe up to early 1st century AD).

Smith’s vocabulary provided the words for his famous statement, “truck,
barter, and exchange” and conformed to his knowledge their English language meanings.
‘Truck’ is about the payment of ‘wages’ in the form of goods (labour for
goods); ‘barter is usually the exchange of goods for goods; and ‘exchange’
describes the process by which anything is given for anything in return between
anybody(see the Oxford English Dictionary). Their meanings in foreign languages and folklore may well be different.

Smith’s ‘exchange’ is often carelessly miss-stated by some authors as general trade (e.g.,
Polanyi).While trade can describe
many forms of exchange, it does not cover all forms of exchange, including those
appertaining to pre-historic times and cultures.In the early 19th century, the “Truck
Acts” made trucking by employers illegal in the UK. Truck exchanges were around
in the early 20th-century, at least in song, e.g., ‘16-tons’ and
‘another day older and deeper in debt, I owe my soul to the company
store’.Truck was widely used in
Smith’s day, and its form persisted informally elsewhere (for example,
truck-type exchanges were mentioned by Emile Zola in ‘Germinal” (1895) in
reference to the wives of destitute strikers, who were exploited by a
shopkeeper – sexual access for provisions).The word exchange as used by Adam Smith does not need, nor
is it limited to, exchange as a monetary exchange.

Smith’s general use of exchange as a legitimate word for what happens goes
back to as early as 1761, in his essay, ‘Considerations on the First Formation
of Languages’ he notes thatlanguage origination,
like the division of labour, was a “necessary consequence of the faculties of
reason and speech”, which we know now had evolved over millennia since the speciation of
proto-humans from the common ancestor of human and chimpanzee apes. Homo
sapiens emerged c.100,000 years ago.

Obviously, no written history is possible for the long period even since
the Great Ice Age c.50,000 years ago.The last glacial maximum occurred c.20,000 years ago as humans moved
closer to historical accounts. Accounts of how humans in their societies
evolved towards today’s complex, highly populated societies are a fascinating and
unsettled subject.

I remain sceptical of Dr David Graeber’s dismissal of Smith’s
‘exchange’ conjectures as a peculiarly human behaviour, to which he attributes
rather disreputable purposes behind Wealth Of Nations.Dr Graeber has firm views about
exchange theory as mainly taken from neo-classical economics textbooks that seem to inform his
thinking, but which are not shared by myself and many other economists.Dr Graeber claims that ‘exchange is
about equivalence’ (he links it to “gunfire”!) in which each side “is trying to
trying to outdo the other” and they “try to break it off when both consider the
outcome to be more of less even”, because they really want instead to “seek maximum material
advantage” (103).With such a
twisted view of exchange, Dr Graeber is stuck in a conundrum: if each side
strives for an equivalence and aim to end up better than the other party, and then they break off when they do not succeed, as the cannot on his concept of trade "equivalence", how does anyone ever exchange anything, let alone the
30 billion exchanges available in New York each day?Dr Graeber’s contradictory view taken from some elementary textbooks is
not very sound. Both parties, in
fact, in exchange make themselves better off than before they exchange.Each considers what they give up is of
less ‘value’ to them than what they get back in return.They both gain, otherwise they would
not exchange! There is no notional equivalence. Smith said “Give me that which I want, and you shall have this
which you want’ (WN I.ii.2: 26); the universal bargainers’ conditional proposition. It is because both sides gain over their pre-trade position that exchange through trade is so widespread and popular. And nobody "designed" it and once it emerged, "spontaneously" it proved to be a mutually winning behaviour. Communists tried violently to suppress the behaviour and failed after 70 millions dead.

Smith wrote with the information he had and the plausible conjectures
he constructed given the information to which he had access.David Graeber also uses
conjecture, for instance in defining human societies as passing through
‘communism’, using the (tendentious) modern wholly political definition of
“from each according to his ability, to each according to his needs’, through to
the many millennia of what Graeber calls the ‘human economies’. In them there
was not a great deal of humanity practised, especially for the female line, who
were sex slaves, through to recent ‘capitalism’, which Dr Graeber accuses of
inventing the ‘catastrophe” of the slave trade, even though it had existed for
many millennia before the 19th century and capitalism. And communism really is about "from each according to his role in the central plan, to each according to his politics".

So, post reading Graeber’s book, I re-looked at some of my books on
subjects related to anthropology that I had collected while I was researching
my (unpublished) “The Pre-History of Bargaining” (2003-5).Among them there is Steven Mithen’s,
“After the Ice: a global human history 20,000 – 5,000 BC”, Orion, 2004, which
at 622 pages pips in length Dr Graeber’s long book and neatly ends where
Graeber’s begins. I also re-read a book I had bought more recently, Timothy Baugh
and Jonathon Ericson’s, “Pre-historic Exchange Systems in North America,1994,
Plenum Press.Taking just two of
the 14 scholarly refereed papers, Jon L. Gibson, “Empirical Characterisation of
Exchange Systems in the Lower Mississippi Valley Pre-history’ and Robert H.
Lafferty’s paper, ‘Pre-Historic Exchange in the Lower Mississippi Valley”, I
was struck by the scientific precision of each paper, both fully referenced
from scientific sources from the primary archeolgical literature, based entirely
on painstaking field research by the authors, as recorded in the subject’s splendid
literature library.

The authors reported on the empirical evidence for trade across
several thousand miles of tributary rivers, open land, flood plains, mountains
and forests of North America from roughly 10,000BC to 1540AD. Exchange systems
and periods are identified from excavation of burial mounds and nearby detritus
belonging to various tribes common to each area.‘Beautiful stone ornaments, abstract life-forms, effigy
beads; rare (to individual areas of mounds) geological materials (pebbles, flints,
lithics, adzes, minerals, pottery, large axes, beads, obsidian, coloured
rocks and etc., and much else that are naturally sourced great distances away, suggesting
long-standing, long distance exchange relationship and forms of primitive
trade.From graveside offerings and
rituals they suggest ceremonialism in more recent periods (160 BC to AD
70).The association of
objects with elite burials leads to suggestions that exchange/trade was mainly
of benefit to elites and not widespread bilaterally among populations.Exchange in objects was political
in nature.

As technology developed in water-borne traffic, and in hunting/ warfare weapons, it promoted associated growth of territorial influences and
dominance.With the arrival of
Europeans (Spanish and British) trade in animal skins and trinkets grew and the quantity
of all exchange goods, both local and imported, across large distances, grew in
importance, from the Rockies to the Atlantic.There is even evidence of mines 20 to 40 feet deep,
suggesting knowledge of minerals.Thousands of farm tools, hoes and oval spades suggest quite
independent indigenous introduction of early agriculture in North America separate
from the earlier agricultural revolution in the European middle east c.10,000 BC.

Now what these suggest, pertinent to Smith’s primitive discussion of
the Ages of Man and to his hypothesis of the role of exchange in social
evolution, is that he was broadly right about the role played by the evolution
of forms of exchange, be the crude reciprocities common to all human cultures (and to near relatives
like Chimpanzees), more sophisticated access by male elites to women and their
children, whose males were trapped in some kind of invented social debts and general submission, exchanges of goods
for goods however this was wrapped in local cultures controlled by elite men,
or for political alliances for mutual security between strangers and
neighbouring tribes.

I conclude, that Dr David Graeber takes far to narrow (and dare I say,
somewhat too hasty) a view of Adam Smith, largely unsupported by the evidence
of anthropology and archaeology of the deep past.Anthropologists who only look to surviving remnants of
living tribes living on the edges of modern society, as if they are perfect
examples of isolated past, pre-modern contact societies, who once dominated the planet,
may jump to fallacious conclusions. Of course, they are not helped by relying
on modern neoclassical textbooks for their understanding of economics or of Adam
Smith, as Lost Legacy has tried to show since 2005.

Sunday, November 25, 2012

Good Sense on Economists and Dentists

Is the "crisis"
in economics one of the content of the discipline, or rather of its social
function? I ask because of a point made by Ronald Coase:

‘The degree to which
economics is isolated from the ordinary business of life is extraordinary and
unfortunate (hat tip to Paul).’

It's certainly
unfortunate, because the economics that can help people with the "ordinary
business of life" is actually thriving. As I've said in the IC, there's a tremendous amount
economics can offer to investors. We know the distribution of asset returns and therefore
their risks. We know the cognitive biases that can lead to widespread poor investment performance, and
we can both quantify their effects and identify some of the stock market anomalies they generate. And we know about
the maths of how to diversify. All this, and more, allows us to
give useful investment advice.

Of course, we can't
predict the future. But perhaps we don't need to: those investors who had used
the Halloween and May Day indicators in 2008 would have avoided the
worst of the 2008 crash.

In this regard,
economists are indeed living up to Keynes' famous ideal:

‘If economists could
manage to get themselves thought of as humble, competent people on a level with
dentists, that would be splendid.’

Like dentists, we can't
greatly enrich people's lives, but we can offer reasonable advice on how they
can avoid a few nasty problems.

Why, then, should we
think economics is in crisis?

The obvious answer is
that we didn't see the crash of 2008 coming.

But is it even logically
possible to foresee the future? G.L.S Shackle thought not,
because individuals' choices, which are what determine economic outcomes, are
not forecastable - and his argument has been ignored rather than rebutted. And
Gary Gorton has said that "Financial crises are not
predictable", in part because they arise from cascade-type behaviour which cannot be
foreseen.

Put this another way.
Imagine economists had widely and credibly warned of a financial crisis in the
mid-00s. People would have responded to such warnings by lending less and
borrowing less (I'm ignoring agency problems here). But this would have resulted
in less gearing and so no crisis. There would now be a crisis in economics as
everyone wondered why the disaster we predicted never happened. The point is
that forecasts can only be right if they are not believed.’

Comment

I agree with these
remarks by Chris Dillow (though I do not always agree with him on Adam Smith).I interpret Adam Smith’s approach
to predictions similarly – he rarely made any; his sole prediction that in just over
100 years (1876) North America would produce more wealth than Britain came true.

Economists started giving
advice to government from the 19th century.Smith too, gave direct private advice
to UK government ministers (at their request and occasionally unsolicited) on
specific matters like taxation and when publicly advising them to desist from
intervening in entrepreneurial matters for which they were unqualified. In the
very last few lines of Wealth Of Nations he advised readers to cut their spending on defending
the colonies which wouldn’t pay for it and to withdraw, but unfortunately they, and successive Victorian
governments, did not heed him).Smith saw the role of philosophers throughout history as “doing nothing,
but observing everything” and his entire life’s work was mainly spent doing just
that.

Keynes was right about
lowering the ambitions of modern economists from their high vanity-driven roles
to that of more "humble dentists”.Read
the rest of Chris Dillow’s post by following the link.[Fellow economists would do well to
reflect on their reaction to the idea of being less pretentious about what
think they can predict about the future.]

published extracts and a comment on the recent Lost Legacy item: Adam Smith's Authentic Views On Church and State.

These
and other Bloggers are most welcome to do so.There is no need to agree with everything, or anything, I write. I prefer
to let readers, especially new ones scrolling through other Blogs, make up
their own minds.

A Case For "Fact Checkers"

[Fortuitous perhaps,
but his book was ready in 1773 and he went to London to supervise it
publication. While there he got caught up in “zealous” debates with MPs and
Ministers about events in the British colonies of North America.His advice was not accepted (see
the very last paragraph in Wealth Of Nations for a hint at his advice).
Friends(David Hume and the Duke
of Buccleugh) advised him to desist and publish his book.He did so in March, 1776; it had been
printed in December 1775.The
‘timing’ was accidental, not planned]

Coming out the same
year as the Declaration of Independence, the book sparked its own revolution.

It showed that the
best way to expand an economy was for government to get out of the way of
entrepreneurs.

[Gross exaggeration;
Wealth Of Nations was mainly about how “merchants and manufacturers”, who
lobbied for tariffs and prohibitions, and domestic monopolies who were “in the
way” of free markets; of government he advised them to desist from listening to such lobbying and stop acting
as if they knew what was good for consumers.]

"He got most of
it right, and for the past two centuries economists have been filling in the
details," Tim Taylor, author of Teaching Co.'s audio course "Legacies
of the Great Economists," told IBD. "If you disagree with him, you
probably need to re-examine your ideas."

Smith (1723-90) was born
in Scotland to a civil servant who died two months later.

[Adam Smith’s father
died in January 1723 and he was born in June 1723]

His mother
encouraged his interest in learning and enrolled him in one of the best
secondary schools, giving him a solid foundation in the Latin classics,
history, writing and spelling.[He
attended Kirkcaldy Borough school, a couple of hundred yards from his mother’s
house - I have walked the distance between the site where his mother's house stood until demolished. It happened to be an excellent school due to his teacher, David Millar.]

At 14, he entered
the University of Glasgow and studied moral philosophy, developing a passion for
reason, free speech and liberty.

Three years later he
received a scholarship to Oxford University, but found the professors
uninterested in teaching or new ideas, so he spent his time outside class
reading widely in the library.

Unhappy, he left in
1746 before his scholarship was up.

Soon he was hired to
give lectures at the University of Edinburgh.

[Adam Smith was
never hired to lecture by Edinburgh University.He gave private lectures, in effect competing with the university, in a
hired hall off-campus to fee payers, sponsored by Henry Home, later Lord Kames,
and James Oswald, MP.Many
students of law or Divinity, plus members of the public voluntarily attended.We have no definite records of their
contents, other than his lectures on Rhetoric.]

Many of the themes
involved his thoughts on the relationship of morality, freedom and prosperity.

In 1751 he earned a
professorship at Glasgow University teaching logic and stayed in that post 12
years.

[Smith taught Logic for one year only, and then switched to the chair of Moral philosophy until 1764.]

Production

All the while, he
put down his thoughts — and in 1759 he came out with his first book, "The
Theory of Moral Sentiments." In it, he showed how morality depended on
sympathy between individuals.

"He explored
the processes by which we acquire the senses of propriety, justice, political
obligation and beauty on which our skills in the arts of social intercourse and
our character depend," Nicholas Phillipson wrote in his new biography,
"Adam Smith: An Enlightened Life." "In doing so, he introduced
into his analysis a simple observation about the principles of human nature
that had been ignored by modern philosophy, that man's natural indigence had
somehow gone hand in hand with a love of improvement which he would exercise
whenever he felt secure enough to do so."

The book attracted
students from all over Europe. Smith inspired them by extending his thinking
about the human tendency toward betterment — even economically.

Comment

If Scot Smith had read closely Nicholas Phillipson’s
excellent‘Enlightened Life’ he
would not have got the above facts so wrong.I trust that Investor’s Business Daily employs
fact-checkers for ensuring that their financial advice reaches a higher
standard than their author’s knowledge of Adam Smith.

Incidentally, neither Adam Smith, nor any
individual, ever “invented modern free markets”.No society is “invented” by an individual or by designers (attempts to do always disappoint the designers or those affected by the design).Societies and changes within them
emerge by evolution as nameless individuals discover that what they try seems
to work in an existing social context in which they live with others.Free-markets emerged “spontaneously” and
evolved over many centuries prior to 1776, and, of course, unsurprisingly, have continued
to evolve in unpredictable ways since 1776.

Adam Smith observed that evolutionary process
and in doing so he noticed several important features of commercial society
that help us understand something of its dynamics.He made modest pragmatic proposals that were practicable that could
improve how commercial society mightd work better but he never made predictions about
whether his suggestions would be adopted.

Friday, November 23, 2012

Adam Smith on Government Intervention When Promoted by a “Public-Spirited Patriot”

Adam Smith:

“When a patriot exerts himself for the improvement of any part of the
public police, his conduct does not always arise from pure sympathy with the
happiness of those who are to reap the benefit of it. It is not commonly from a
fellow–feeling with carriers and waggoners that a public–spirited man
encourages the mending of high roads. When the legislature establishes premiums
and other encouragements to advance the linen or woollen manufactures, its
conduct seldom proceeds from pure sympathy with the wearer of cheap or fine
cloth, and much less from that with the manufacturer or merchant. The
perfection of police, the extension of trade and manufactures, are noble and
magnificent objects. The contemplation of them pleases us, and we are
interested in whatever can tend to advance them. They make part of the great
system of government, and the wheels of the political machine seem to move with
more harmony and ease by means of them. We take pleasure in beholding the
perfection of so beautiful and grand a system, and we are uneasy till we remove
any obstruction that can in the least disturb or encumber the regularity of its
motions. All constitutions of government, however, are valued only in
proportion as they tend to promote the happiness of those who live under them.
This is their sole use and end. From a certain spirit of system, however, from
a certain love of art and contrivance, we sometimes seem to value the means
more than the end, and to be eager to promote the happiness of our fellow–creatures,
rather from a view to perfect and improve a certain beautiful and orderly
system, than from any immediate sense or feeling of what they either suffer or
enjoy. There have been men of the greatest public spirit, who have shown
themselves in other respects not very sensible to the feelings of humanity. And
on the contrary, there have been men of the greatest humanity, who seem to have
been entirely devoid of public spirit. Every man may find in the circle of his
acquaintance instances both of the one kind and the other. ... Would you awaken
the industry of the man who seems almost dead to ambition, it will often be to
no purpose to describe to him the happiness of the rich and the great; to tell
him that they are generally sheltered from the sun and the rain, that they are
seldom hungry, that they are seldom cold, and that they are rarely exposed to
weariness, or to want of any kind. The most eloquent exhortation of this kind
will have little effect upon him. If you would hope to succeed, you must
describe to him the conveniency and arrangement of the different apartments in
their palaces; you must explain to him the propriety of their equipages, and
point out to him the number, the order, and the different offices of all their
attendants. If any thing is capable of making impression upon him, this will.
Yet all these things tend only to keep off the sun and the rain, to save them
from hunger and cold, from want and weariness. In the same manner, if you would
implant public virtue in the breast of him who seems heedless of the interest
of his country, it will often be to no purpose to tell him, what superior
advantages the subjects of a well–governed state enjoy; that they are better
lodged, that they are better clothed, that they are better fed. These
considerations will commonly make no great impression. You will be more likely
to persuade, if you describe the great system of public police which procures
these advantages, if you explain the connexions and dependencies of its several
parts, their mutual subordination to one another, and their general
subserviency to the happiness of the society; if you show how this system might
be introduced into his own country, what it is that hinders it from taking
place there at present, how those obstructions might be removed, and all the
several wheels of the machine of government be made to move with more harmony
and smoothness, without grating upon one another, or mutually retarding one
another’s motions. It is scarce possible that a man should listen to a
discourse of this kind, and not feel himself animated to some degree of public
spirit. He will, at least for the moment, feel some desire to remove those
obstructions, and to put into motion so beautiful and so orderly a machine.
Nothing tends so much to promote public spirit as the study of politics, of the
several systems of civil government, their advantages and disadvantages, of the
constitution of our own country, its situation, and interest with regard to
foreign nations, its commerce, its defence, the disadvantages it labours under,
the dangers to which it may be exposed, how to remove the one, and how to guard
against the other. Upon this account political disquisitions, if just, and
reasonable, and practicable, are of all the works of speculation the most
useful. Even the weakest and the worst of them are not altogether without their
utility. They serve at least to animate the public passions of men, and rouse
them to seek out the means of promoting the happiness of the society (TMS
IV.i.11: 185-6).

Comment

This passage, remarkably, is not often written about.It deserves to be.It is from the “invisible hand” chapter
in Moral Sentiments.

It is specifically about a “public spirited patriot” who seeks to “improve”
the “public police”, i.e., the provision of goods and services of benefit to
the provision of necessary commodities for supply provisions and consumption
among the community.

Note:

“The perfection of police, the extension of trade and
manufactures, are noble and magnificent objects.”

And:

“You will be more likely to persuade, if you describe the great
system of public police which procures these advantages, if you explain the
connexions and dependencies of its several parts, their mutual subordination to
one another, and their general subserviency to the happiness of the society; if
you show how this system might be introduced into his own country, what it is
that hinders it from taking place there at present, how those obstructions
might be removed, and all the several wheels of the machine of government be
made to move with more harmony and smoothness, without grating upon one
another, or mutually retarding one another’s motions.”